Category: Health Alerts

Britain has long had an active cash market for medical care provided by private hospitals, which helps people get around the long waits in the National Health Service, and also serve people from abroad.

Like Walmart, Nuffield will match competitor prices under reasonable conditions — “If you find an alternative private hospital in your local area offering a better price for the same surgical intervention, sold with the same service conditions, we’ll lower our price to equal it.” The conditions require the other private hospital be within 15 miles of the Nuffield hospital, exclude NHS private patient prices and require a written quote.

One overlooked “ask” in the President’s 2015 budget was a 25 percent hike in the budget of the Office of the National Coordinator of Health Information Technology (ONC). Admittedly, it is a small amount of money, $75 million. Nevertheless, it is a 25 percent hike in a budget that should be reduced.

Although the costs of operating the ONC are small, it has an outsized role in determining how health information technology (HIT) is being deployed. HIT includes a wide range of products, technologies, and services, such as electronic health records (EHRs), mobile and telehealth technology, cloud-based services, medical devices, and remote monitoring devices, assistive technologies, and sensors.

The experience of the ONC in its first few years of existence warns against allowing it to exert too much control over HIT. In 2004, the ONC was originally envisioned as the “coordinator” of HIT. However, in 2009, the ONC became the financier, certifier, and regulator of much of HIT. The federal government allocated a 5-year budget of $30 billion to disburse as incentives to hospitals, physicians’ offices, and other health facilities, as encouragement to install electronic health records (EHRs). ONC was given the power to certify EHRs that would qualify providers for the incentive payments. A new NCPA study concludes that this has proven expensive, unproductive, and potentially harmful, which leads to the conclusion that the federal government should play a minimal role in guiding HIT over the next decade.

Representative Fred Upton, Chairman of the House Energy & Commerce Committee, recently released a discussion draft of legislative language for the 21st Century Cures Initiative. This initiative attempts nothing less than to “boil the ocean” of regulations and incentives that govern medical innovation in the U.S. The 400-plus-page draft rolls up a number of previously proposed bills (including an updated version of Representative Marsha Blackburn’s SOFTWARE Act, discussed in a previous Health Alert).

A large share of the draft incorporates legislation designed to improve the incentives for inventing new medicines, or finding new uses for old medicines. This is important, because we are facing a crisis in pharmaceutical innovation.

One of these is the Dormant Therapies Act, put forward by Senator Orrin Hatch (R-UT) and Senator Michael Bennet (D-CO). This would give a “dormant therapy” 15 years of marketing exclusivity after approval by the Food and Drug Administration (FDA), significantly more than currently exists.

The designation of “dormant therapy” will add to the complexity of other designations already in law: breakthrough, pediatric, orphan and fast-track. Currently, the longest terms of exclusivity are for orphan drugs (seven years) and biologics (12 years). Most new drugs only receive five years of marketing exclusivity.

This increasingly complex web of exceptions to ordinary patent law are due to the extraordinary length of time the FDA takes to approve a new medicine. Although a U.S. patent has a term of 20 years, the time chewed up in FDA review is not taken into account. As a rule of thumb, it takes 12 to 15 years for the FDA to approve a new medicine, which results in only five to eight years of effective patent life.

The dormant designation differs from other designations in that the innovator waives any patents that extend beyond the 15-year marketing exclusivity, in exchange for extending patents that expire within 15 years. The principle behind the Dormant Therapies Act is sound. Nevertheless, there is room for improvement.

The Dartmouth Institute maintains that large variation in the use of various medical procedures demonstrates the inefficiency inherent in the way that the U.S. health care system is organized. The mere fact that variation exists also means that the U.S. system is inequitable. If procedure rates vary, some people have too little access to medicine while others have too much.

Members of the Dartmouth group also claim that “geography is destiny for Medicare patients.” Its Dartmouth Atlas Project claims to show that although Medicare spends more in areas where there are more hospital beds, physicians overall, and specialists per capita, people do not get better care.

If one believes these claims, then the solution to U.S. health care spending is to remove decision making power from individual patients and physicians. Instead, government should have the power to forcibly equalize treatment and resource use everywhere in the country. Fortunately, a large amount of evidence suggests that the Dartmouth Institute interpretation leaves much to be desired and that it is possible that government control is more likely to be the problem than the solution.

For example, this 2010 Dartmouth Atlas Surgery Report from the Dartmouth Institute made much of the national variation in Medicare hip replacement rates in 2000-01. Noting that the rate ranged from 1.2 per 1,000 in the hospital referral area of Alexandria, Louisiana, to 6.7 per 1,000 in the hospital referral area of Boulder, Colorado, it concluded that

[b]ased on the data presented here, it appears that patients in some regions and among some populations may not be getting adequate access to the procedures, while patients in other regions and among other populations may be undergoing the procedures at higher rates than necessary.

Reaching such a conclusion from local hip replacement rates requires assuming that the U.S. population is composed of identical people identically distributed over a featureless geographic plain that is everywhere the same.

An increasing number of businesses are figuring out that continuing to offer health benefits puts them at a competitive disadvantage versus firms which socialize the costs of health care by shifting their employees onto Obamacare exchanges.

However, these employers are handing their employees a risk that they likely do not appreciate. If they are operating in one of 36 states where Obamacare might come to a screeching halt in the second half of 2015, their employees could lose their subsidized Obamacare plans as early as July.

This is what will happen after a Supreme Court decision in favor of the petitioner in the Obamacare case of King v. Burwell. This case addresses the question of whether the Administration can pay Obamacare subsidies to insurers in states that did not establish their own Obamacare exchanges.

The Court will hear oral arguments on March 4, and is expected to announce its decision in June or July. If the Supreme Court finds in favor of King, tax credits to health insurers via the federally operated exchanges in 36 states will likely stop within a few weeks. As a result, enrollees will be exposed to the true premiums of their policies for the first time. Many will not be able to afford them.

Enrollees are likely unaware of this, because the exchanges were designed to camouflage the subsidies. The Obama Administration likes to pretend that it has actually lowered the cost of health insurance in the individual market. So, the exchanges are designed only to present to applicants only the premiums net of subsidies.

According to a recent report published by the Administration, the average Bronze plan for a single person in 2015 is $265 per month. Silver, the most popular plan, has an average premium of $336 per month. Platinum, the most expensive, costs $439. However, the Administration also notes that 8 of 10 returning enrollees will be able to get a plan for less than $100, regardless of the metal level they selected in 2014 (emphasis in the original).

Here are some data suggesting that health spending increases are, as theory suggests, difficult for the public sector to control. If true, a long run strategy that seeks to control expenditures by increasing the fraction of health spending under government control is more likely to increase expenditures than reduce them.

The two charts below show different measures of inflation-adjusted spending by the public and private sectors in the United Kingdom and the United States.

The first chart is from the Nuffield Trust for Research and Studies in Health Services, a British foundation devoted to “evidence-based research and policy analysis for improving health care in the UK.” It shows that inflation-adjusted UK public spending on health has increased by more than 200 percent since 1997. Inflation-adjusted public spending increased by 68 percent between 2000 and 2012. Private spending increased by 26 percent. Over the same time period, the population of the United Kingdom rose from about 59 million to 64 million, an increase of almost 7 percent.

Qi, as I understand it, is a term in Chinese culture that refers to the life force or natural energy that flows in living things and, perhaps, the entire universe. Many Americans know about it through Chinese traditional medicine or martial arts. If you are a fan of such practices, you will be glad to learn that the Food and Drug Administration (FDA) has recently announced that it has no plans to regulate items which claim “to increase, improve, or enhance the flow of qi” as medical devices.

Well, that is a relief to many, I suppose. Nevertheless, it invites the question: Why is the law governing the regulation of medical devices so poorly written that it gives the FDA so much power that it has to re-assure us that it won’t regulate our qi-quickening gadgets?

The news came through draft guidance that the FDA published in January, through which it promises to exercise restraint when determining whether certain products are medical devices as defined by the 1976 amendments to the Food, Drug, and Cosmetics Act. The products addressed are those which help with “general wellness” and “promote a healthy lifestyle” but pose a low risk to peoples’ safety.

“General wellness” means that the product’s claims cannot make any reference to diseases or conditions. For example, a product which promises to help you manage your weight is exempt. However, if it offers to cure your obesity, it will be regulated as a medical device. Further, the guidance clarifies that this exemption will only apply to products with a “low risk.” A vendor cannot use this guidance as a loophole to deploy a highly risky product but avoid regulation by not making medical claims. So, products that use lasers, radiation or implants will continue to be regulated. The draft guidance helpfully includes a one-page decision tree.

In his State of the Union speech, the president emphasized the plight of 43 million American workers whose employee benefits do not include paid sick leave. Presumably, many of them feel they cannot afford to take a sick day to convalesce after an illness or to care for a sick child. However, the President’s solution was a bad one: he proposed to force employers to provide up to seven days of paid sick leave to workers (and their families) annually. Imposing another costly employer mandate is a bad idea. Instead, the president should have proposed expanding health savings accounts (HSAs), allowing workers to replace income lost to sick days (more on this further down).

Bad Idea: Mandating Sick Pay. To some, mandating paid sick days may sound benevolent, but it would hurt the people it’s intended to help. One problem with the president’s proposal is that it’s unrealistically generous. Of the 100 million jobs that provide some paid sick leave, most likely don’t provide seven days annually. Obama also appears ignorant of the fact that his own health adviser, Jonathan Gruber, published academic research back in the 1990s showing workers themselves wind up paying the cost of mandatory benefits through lower wages. Thus, if employers are forced to provide seven paid sick days for each worker every year, employers will adjust workers’ pay downward to compensate for the cost. This would inhibit pay raises, and it would impact paid vacation days.

What Gruber and other economists have found is that fringe (and mandatory) benefits are just one portion of total compensation. In other words, many workers willingly forgo higher cash wages in return for other types of employee benefits. For instance, many workers prefer to spread 50 weeks of pay over the 52 week year to allow them to take 10 vacation days and still receive a paycheck for the two weeks they take off work. Paid vacation days are not free; they are merely a way to smooth cash flow. Paid sick leave is similar.

Last summer, my colleague Devon Herrick accused the Centers for Medicare & Medicaid Services of looking at Medicare’s solvency through rose-colored glasses. Well, CMS has passed those shiny spectacles to another government agency.

In the January 2015 Budget and Economic Outlook, the Congressional Budget Office (CBO) has pronounced that Obamacare’s future costs will be seven percent less than were projected in April 2014. Looking even further back in the rear-view mirror, the CBO itself has an even more exciting story to tell:

In March 2010, CBO and JCT projected that the provisions of the ACA related to health insurance coverage would cost the federal government $710 billion during fiscal years 2015 through 2019 (the last year of the 10-year projection period used in that estimate). The newest projections indicate that those provisions will cost $571 billion over that same period, a reduction of 20 percent (p. 129).

Table 1 decomposes this $139 billion of reduced costs over the five-year period. It shows that $5 billion are due to higher tax receipts than originally projected, while $134 billion are due to reduced costs.

Annual statistics reporting from the American Cancer Society shows the death rate from cancer in the US has fallen 22% from its peak in 1991. This translates to more than 1.5 million deaths from cancer that were avoided.

There are a number of explanations for this success. The most important appears to be the reduction in smoking in the population. Lung cancer is still very deadly. However, because fewer people are diagnosed, the death rate from lung cancer has dropped dramatically since the early 1990s for men and turned around for women starting about 2005.

As shown in the two graphs below, deaths from lung cancer had actually increased dramatically for men since the 1930s and for women since the 1960s, so a reduction is a welcome break in the trend. Still, almost one in three cancer deaths in the United States in 2015 will be due to smoking.